Business Strategy

How to Update Your IT Budget When Switching from CapEx to OpEx

Post by
Net Friends

Technology is fast evolving to help businesses drive stronger performance and steer clear of stagnation. According to Gartner, worldwide IT spending is expected to grow by 2.4% to $4.5 trillion in 2023. The traditional method for IT investments relies on capital expenditures (CapEx), but given the significant upfront costs, it fails to be an agile model. In contrast, operating expenses (OpEx) are flexible and easily responsive to changes in the marketplace. Explore more differences and discover how to update your IT budget for the best results leveraging OpEx:

Switching From CapEx to OpEx

With CapEx, you typically write a check upfront for that $50,000 IT investment or at least make a down payment for half of it. When leveraging OpEx, you can spread the cost of that $50,000 technology upgrade over the span of several months and often times multiple years. This budgeting model allows you to avoid weakening the cash position of your business. With OpEx, you no longer have to scramble for significant capital.

Transitioning to an OpEx model yields several benefits:

  • Lower Upfront Costs for IT Investments
  • Access to Cutting-Edge Technology & Services
  • Greater Responsiveness to Rapidly Changing Market Conditions
  • Ability to Reduce or Avoid Depreciation on IT Assets

The primary difference between CapEx and OpEx is the short- vs. long-term perspectives:

  1. CapEx reflects how decision-makers approach the long-term goals of the organization by balancing their IT investments and financial decisions.
  2. OpEx-driven budget decisions reflect an approach to optimizing day-to-day business functions to increase productivity and profitability.

However, OpEx can function as a long-term business strategy. By leveraging OpEx as a predictable, cost-effective, and flexible alternative to CapEx for technology-enabled investments and services, businesses free up cash flow to address more short-term operational needs and special projects that contribute to long-term business growth and sustainability.

How to Update Your IT Budget Under OpEx

An optimized IT budget is critical for a smoother business operation. Factors to consider:

1. Leverage the Cloud

IT projects associated with cloud transition can require significant capital investments. Traditionally, most IT service providers will require at least 50% down payment and then the remaining balance upon completion of the IT project. For small businesses, major IT updates are not typically feasible in one big change event and may not be cost-friendly to an SMB's budget. Furthermore, there are security risks and compliance concerns involved with major IT change.

Some IT providers do offer a fully managed solution for IT projects that targets a core business outcome while leveraging the OpEx model. This approach reduces the high upfront costs of an IT project. It also enables gradual and secure improvements to your cloud infrastructure while pacing with a rate of change that doesn't disrupt daily operations.

Recommended Reading: Solving the Cloud Transition & Security Challenge

2. Outsource Managed IT Services

Worrying about depreciation and asset lifecycle management (ALM) can be a thing of the past. Under OpEx, you can lease most of your IT equipment, thereby eliminating several budget categories associated with outright purchasing and systems upkeep. Businesses outsource managed IT services as an operating expense and rely on a dependable IT partner to deploy their technology, provide ongoing maintenance, backup their data, upgrade operating systems, and deliver IT support and repairs.

OpEx IT investments feature variable costs that are easy to scale as needed in response to marketplace demands and business growth. The best way to optimize your IT spending under the OpEx model is to choose a reliable managed IT services provider.

Discover How Hiring a Managed Services Provider Can Be a Game-Changer

3. Protect Your Entire Workforce

As your company increases online engagements, your business is more vulnerable to cyber attacks, such as phishing, malware, and hacking. A robust and safe network should always be a top priority, and strict data and access management is crucial to protecting your business.

Your IT budget should account for online safeguards such as firewalls, password managers, managed detection & response (MDR) services, and biometrically-protected accounts to minimize the risk of unauthorized access and data loss. These systems require frequent updates to keep abreast of looming threats, and these efforts can be pretty expensive. However, rolling them into predictable operating expenses will make budgeting a more seamless task.

Extensive cybersecurity training is also essential for your employees. An empowered workforce (whether working remotely or in a hybrid model) is more effective in identifying and helping to contain system failures and cybersecurity hacks. The OpEx model aligns best with subscriptions to cybersecurity training programs.

Transition to OpEx with Ease

Aligning your IT budget with your OpEx framework positions your company to reap the rewards of Anywhere Operations. Net Friends offers a full suite of managed services, such as NetCore, to help you eliminate overspend and optimize IT expenses. Our reliable, secure, and affordable network boosts your productivity and profits. Contact us today for assistance in making a seamless transition from CapEx to OpEx while maximizing your IT budget and competitiveness in the marketplace.

- Top 7 Reasons Businesses Switch to OpEx for IT Investments
- Solving the Cloud Transition & Security Challenge
- Top 4 Critical IT Projects for Small Businesses

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